Multiple Choice

1.      Increasing opportunity costs result in a production possibilities frontier that is ___________ to the origin.

A)    convex

B)     concave

C)     linear

D)    horizontal Answer: B

2.      The marginal rate of transformation (MRT) of X for Y refers to:

A)    the amount of X that a nation must give up to produce each additional unit of Y.

B)     the amount of X that consumers are willing to give up to consume each additional unit of Y.

C)     the amount of Y that consumers are willing to give up to consume each additional unit of X.

D)    the amount of Y that a nation must give up to produce each additional unit of X. Answer: D

3.      When countries engage in international trade, specialization tends to be:

A)    complete with constant costs, and complete with increasing costs

B)     incomplete with constant costs and incomplete with increasing costs

C)     incomplete with constant costs and complete with increasing costs

D)    complete with constant costs and incomplete with increasing costs Answer: D

4.      Why do increasing opportunity costs of production occur?

A)    Factors of production are homogeneous

B)     Factors of production are being used in the same fixed proportion

C)     Factors of production are completely adaptable to every use

D)    All factors of production are not equally suited in the production of all commodities Answer: D

5.     Nations will have different production possibilities frontiers because of which characteristic?

A)    differences in consumer preferences

B)     differences in degree of unemployment

C)     differences in factor endowments

D)    differences in community indifference curves Answer: C

6.      The tastes or demand preferences of a nation are given by:

A)    production frontiers

B)     community indifference curves

C)     marginal rate of transformation(MRT)

D)    consumption possibilities curves Answer: B

7.      Community indifference curves are __________________ sloped and _____________ to the origin.

A)    positively, concave

B)     negatively, convex

C)     positively, convex

D)    negatively, concave Answer: B

8.      What is given by the absolute value of the slope of the community indifference curve at the point of consumption and declines as the nation moves down the curve?

A)    marginal rate of substitution (MRS)

B)     marginal rate of transformation (MRT)

C)     marginal rate of return

D)    marginal rate of technical substitution (MRTS) Answer: A

9.      As we consume more of a commodity, a(n) ______________ marginal rate of substitution in consumption is reflected in a ________ community indifference curve.

A)    increasing, convex

B)     declining, convex

C)     increasing, concave

D)    constant, convex Answer: B

10.    A(n) ______________ opportunity cost in production is reflected in a _________ production possibilities frontier.

A)    increasing, convex

B)     declining, concave

C)     increasing, concave

D)    constant, convex

16.    In a two-nation world, if Nation A’s export prices increase relative to their import prices, which of the following will occur?

A)    Terms of trade improve for both nations

B)     Terms of trade worsen for Nation A and improve for their trade partner

C)     Terms of trade improve for Nation A and worsen for their trade partner

D)    Terms of trade worsen for both nations Answer: C

17.    International trade and specialization in comparative advantage goods leads to:

A)    job gains in domestic comparative advantage industries and job losses in industries with a comparative disadvantage.

B)    job losses in domestic comparative advantage industries and job gains in industries with a comparative disadvantage.

C)    job gains in domestic comparative advantage industries and job gains in industries with a comparative disadvantage.

D)    job losses in domestic comparative advantage industries and job losses in industries with a comparative disadvantage.

Answer: A

18.    A nation may consume _____________ only with specialization in production and trade.

A)    inside its production frontier

B)     outside its production frontier

C)     on its consumption frontier

D)    tangent to its consumption frontier Answer: B

19.    In the following diagram, if PA represents the relative price that country A can use to carry out trade, then to maximize welfare, country A should

Y

20

15

10

0

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X